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ECLAC Study: Latin America Not a "Pollution Paradise"

Some critics have postulated that the growing openness of Latin American economies and increased trade since the 1980s have in turn produced an increase in polluting industries, creating a sort of "pollution paradise." To test this assumption, the UN Economic Commission for Latin America and the Caribbean (ECLAC) led a study to discover the basic causes of increased pollution in eight Latin American economies (Study No. 22, Environment and Development Series, Industrial Pollution in Latin American Countries Pre and Post Economic Reforms.) The study concluded that the increase in pollution was the result of the general dynamism or growth of the manufacturing sector, especially exports, and not of a bias toward polluting industries.

Previous studies of Latin American environmental issues have tended to focus on the depletion and unsustainable use of natural resources. Less attention has been paid to problems of environmental pollution, also known as "brown pollution." This problem has increased along with the per capita income of the countries concerned. According to Kuznets, the pattern follows an inverted U; as a country's economy grows, it generates more pollution, but as the economy becomes more sophisticated the level of pollution drops. No Latin American country has reached the second stage yet, however.

Latin American manufacturing exports grew from 57% of the region's total exports in 1980 to 77% in 1995. Although CO2 emissions are far below those of the US and Great Britain, Latin America's emissions are growing by 4.7% annually. US emissions are growing by only 1.9%, and in the UK the level is actually decreasing by 1.2%. Concerns have been raised that if emissions continue to increase in Latin America, along with deforestation, it will no longer be possible for the region to secure alternative financing for the preservation of natural resources. Such financing, which is available from the Clean Development Mechanism of the Convention on Climate Change, allows developing countries to issue bonds guaranteeing the absorption of a certain amount of CO2 for 20 years. The buyer, a developed country or industry, can compensate for amounts that exceed the limits established by the Convention by buying the bonds.

The eight countries in the ECLAC study represent 80% of regional GDP. The report found that since opening their economies, the countries saw industrial pollution increase, particularly in activities linked to exports. However, the increased pollution did not occur as a result of a reorientation or change in the composition of manufacturing in favor of polluting industries. Rather, the increase was due to the general dynamism or growth of the manufacturing sector, especially exports. After instituting economic reforms, the majority of the countries tended to specialize in products that relied intensively on natural resources rather than on pollution.

In the period studied, industrial pollution in the eight countries grew by 32% in the manufacturing sector, compared to 213% in the manufacturing export sector. This discrepancy was due entirely to the scale effect and not to a change in composition (to polluting industry). Only in Brazil was the composition effect positive in the emissions linked to manufactured exports. However, a more detailed analysis of different sectors in the eight countries shows that in all cases the chemical sector gained a share of total exports and in the manufacturing portions of GDP. This shift appeared to be due to growth in internal demand and to the chemical industry's success in finding market niches for its products, rather than to lax environmental norms. Paper and cellulose also showed large growth in total exports. This trend suggests two problems: the nonsustainable use of inputs relying intensively on natural resources; and the pollution that production generates, especially of water resources.

The study found that since it joined NAFTA, Mexico's economy has attracted large investments, becoming more modern, sophisticated and competitive in its production and exports. To a lesser extent the same trend is true of Argentina, while the Brazilian economy returned to a more traditional pattern of intensive use of natural resources and more pollution. Brazil has made the biggest effort to achieve recognition of its environmental standards in the European Community. However, its lateness in opening its economy and its privatization process have created multiple unknowns about future environmental consequences.

Like the ECLAC study, similar research in 1993 by Nancy Birdsall and David Wheeler (Journal of Environment & Development, reprinted by the World Bank), also discounted the 'pollution haven' hypothesis, arguing that liberalization of trade regimes and increased foreign investment in Latin America have not been associated with pollution-intensive industrial development. "From case studies and econometric evidence," the researchers noted, "we conclude that protected economies are more likely to favor pollution intensive industries, while openness actually encourages cleaner industry through the importation of developed-country pollution standards." Another study commissioned by ECLAC in 1999 (Impactos ambientales de los cambios en la estructura exportadora en nueve pa�ses de Am�rica Latina y el Caribe: 1980-1995, by Marianne Schaper) found a clear relation between the increase in the export of natural resources and greater levels in indices of openness. The study emphasized the importance of complementing the process of opening with an adequate environmental policy backed by a solid institutional structure. Together with these steps governments must formulate and execute economic, technological and environmental policies that contribute to improving the systemic competitiveness of their countries' productive and exporting apparatus.